Trump’s Visit to India: Cementing the Economic Engagement

Urbi Das
February 20, 2020


Trade and commerce link nation-states that are separated by geography and divided by history. In the present century, the coin of power resides in economics, reiterating liberal international argument of the world as a cobweb model, and international relations as a positive-sum game. The relationship between India and the United States of America has evolved over the years from ‘estranged democracies’ to engaged partners sharing similar world view. The relationship has been aptly articulated by President Bill Clinton ‘as natural allies, two nations conceived in liberty, each finding strength in its diversity, each seeing in the other a reflection of its own aspiration for a more humane and just world (Bill Clinton, 42nd President of the United States of America)’.

Economic engagements between the two democracies are mainly premised on three planks; trade and commercial ties, foreign direct investment (FDI), and developmental assistance provided by the United States of America. The United States has been particularly interested in trading and investing in India after the latter initiated the economic reforms in 1991, taking gradual steps to liberalize its economy. Since then U.S. trade in India has been encouraging, generally reflecting a rising trend. As of 2018, India is the United States’ ninth-largest goods trading partner with USD 87.9 billion in total (two way) goods trade and the 12th largest export partner and 10th largest import partner (United States Trade Representative (USTR) 2019). However, it is worth mentioning that even though the United States has emerged as India’s largest trading partner, the share of India in US trade remains less than desired. In the area of foreign direct investment, USA’s share in India (stock) was USD 46.0 billion in 2018, a 3.4% increase from 2017 concentrated mostly in scientific, technical and professional areas, while India’s FDI in the United States witnessed a decline of about 2.0% from 2017 and stood at USD 9.6 billion in 2018 (USTR 2019). 

It is worth mentioning that the economic relation between India and the United States is influenced by the contemporary nature of Intellectual Property Rights (IPRs). While economic relations between the United States and India have shown a positive and upward rising trend over the years, the United States has been wary of India’s allegedly weak IP protection mechanism. Time and again, India has been categorized under the Special 301 provision of the US Trade Act, which identifies offenders of U.S. intellectual property rights. In 1989, India was classified as a ‘priority watch list country’. Used as a coercive tool to discipline its offenders, the Clinton administration had designated India as a ‘priority foreign country’, a label which is reserved for the worst IPR offenders. India has often been targeted under the “Special 301” due to its alleged weak Intellectual Property protection, especially in areas of drug patenting, medicines, biomedical, etc., areas that lead to instances of piracy. Issues of trade restrictions and justifications of social justice are areas where India and the United States need to work out. 

Amidst the intensification of bilateral engagement during the Trump-Modi era, there remain a lot of grey areas that need to be resolved. The Trump administration in 2019 had stripped India of its special trade status that had previously facilitated zero tariffs on USD 5.6 billion of exports to the United States. Though being the largest medical device supplier, the US has been wary of restrictions placed by India on the import of high-end surgical and medical devices such as stents, knee replacements, among others. Discussions are on between the trade representatives of both the countries before the two leaders meet, and India has reportedly accepted to remove caps and bring it within the Trade Margin Rationalization (TMR). This would help not only consumers but also allow reasonable profit for traders and importers along with creating a level-playing field for indigenous industry vis-à-vis foreign manufacturers. 

In order to clear up the clouds of suspicion and intensify the existing ties, President Donald Trump is scheduled to visit India towards the end of February 2020. In a vital step to augmenting their relationship, both the countries are set to sign a mega trade deal worth USD 10 billion that would be beneficial to both the democracies. For India, this trade deal will help the economy recover from the ongoing economic crisis and help boost the GDP growth rate. 

The United States has always been concerned about India’s high tariff barriers. In contrast, it can be argued that India has joined the liberal order guided by America at a much later stage and possesses neither the technical knowledge nor the investment capacity that would give India the level-playing field. To this end, New Delhi is looking forward to the restoration of Generalized System of Preferences (GSP) benefits under which India can gain duty-free access to the American market, which was revoked on June 5, 2019, owing to the Indian trade barriers affecting US export of diary and medical apparatus.

India is yet to reach a high level of economic growth, and a vast majority of India’s population is still below the poverty line. The problems of development are complex, and so is the task of nation-building. Economic statecraft is a vital instrument that can boost a nation’s comprehensive power, along with boosting economic growth. India and the United States are integrally linked to the global international order, where bilateral trade and investment ties have shown a positive and rising trend. President Trump and Prime Minister Modi both present similar world-view and aspire to strengthen bilateral relations between the two nations. To this end, the upcoming visit can be viewed as a positive and welcoming gesture aimed towards resolving all doubts and strengthening the ties between the two robust and liberal democracies. 

*** The author is Assistant Professor at Department of International Relations, Jadavpur University, Kolkata ***